The LEGO Group: Envisioning Risks in Asia Connor Campbell Yu-Huai Chang Shanoah Maine Raj Oak Kegan Sims BA 569 – Section 100, Team 1 Monday, November 18, 2019
Planning Assumptions Competitive Structure PESTEL Oligopoly: A few large firms dominate Political - (Neutral) Varies worldwide not particularly strong impact. market share. Differentiated products and some price competition. Economic - (Positive) Growing market, expansion/access to chinese market a Five Forces big contributor. Growing interest in educational segment. New Entry - Moderate Supplier Power - Low Social - (Positive) Toys are at the core of childhood in most cultures. Buyer Power - Moderate Substitutes - Low Technology - (Positive) Advances along Rivalry - High the value chain in tech decrease production costs. VRIO: Business Architecture Environmental - (Neutral) Some concern with packaging but not more Valuable - 2004-2010 revenue increase by XX than other industries. Rare - Unique organizational design developed by Legal - (Negative) - Safety regulations human capital. and fierce legal battles over IP can be challenging. Not Easily Imitated - Would require complete restructuring of org design and business processes. Additional Assumptions ● Educational toys are part of this Organized - Entire company is tethered and industry. aligned through the architecture. ● As of 2012 smartphone games are = Sustained competitive not as strong of a threat advantage (substitute). ● Entertainment brands (Marvel) are booming in China.
Brand is king Legoland Forever! Lego My Market Share Characteristics Characteristics • • Increasing Sales Few large firms • • Increasing Competition Decreased demand, lower sales • • Differentiated Market High price competition Key Success Factors Key Success Factors • • Meet increase demand Brand superiority • Leverage Brand Equity • Enter new markets • • Invest in Marketing Efficient Supply Chain Decreasing Increasing toy market toy market Booming Bricks Hitting the Brick Wall Characteristics Characteristics • • Many new entrants Decreasing sales • • Price wars Lower competition • • Undifferentiated market Undifferentiated market Key Success Factors Key Success Factors • • Win price war (outlast) Business process innovation • • Supply chain innovation Win price war • • Product innovation Enter new markets Bricks are just a commodity
Most Plausible Scenario Legoland Forever! Base on Exhibit 9 Traditional Toys and Games market size is increasing. Chinese sales of educational toys and construction toys had grown 20% between 2009 and 2010. Based on Exhibit 3 Revenue is increasing. Assumptions: Entertainment brands are booming in China • The most plausible scenario is an increasing toy market and strong brand affinity. • Legoland is the best case for LEGO Group
Strategic Recommendations Pursue International Strategy: Sell same product internationally and domestically, first step into Asian market Legoland Forever, Priority: 1. Partner with local/regional distribution centers in Japan, South Korea, Taiwan, China (based on Exhibit 8a) - 5 year contracts 2. Build a local packing facility to serve regional distribution, allows adaptation for trends and safety compliance - avoid specialized equipment and space 3. Do not build a local production factory in the next 5-7 years a. Re-evaluate based on performance (move to different global strategy position) Our recommendations are intentionally flexible to allow Lego the ability to adjust rapidly over the next few years. As such we would not change strategy if what we thought the most plausible didn’t happen. Backup Plan: • Pull back without pulling out • Look to renegotiate partner contracts • Sublet packing facility if possible
Lessons Learned • It is much easier to be proactive instead of reactive and Scenario Planning helps you do that • Compared to other strategy tools which are not adaptive • Under Scenario Planning you are able to plan for an almost endless number of future possibilities by identify a handful of likely key factors/characteristics • Compared to Capital Budgeting tools, which offer a snapshot of a single point in time • Must be careful of over analyzing • We can all find ways to use Scenario Planning in our varied career paths
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